For Consumers

Breaking New Ground with Jumbo Renovation Financing

I have been a renovation loan specialist for years and have begged every employer that I’ve had for one thing, a jumbo renovation loan. I have finally gotten my wish and the high-end, luxury market has a new financing toy.

There’s always been a huge gaping hole in the renovation loan market. Falling into that abyss were high-end consumers looking to buy or refinance homes that need mortgages outside of FHA or conforming loan limits. In many higher cost states, like California, mid-range buyers were sucked into the renovation black hole as well.

When the private mortgage market disappeared in 2006 Fannie Mae and FHA stepped up to the plate and provided an outlet for higher cost areas by raising their loan limits from $417,000 an $271,000 respectively. In many areas those are still the loan limits and, per recent developments, they are going to return to pre-2007 levels.

As it stands right now ‘high balance” loan limits in places like California, DC, New York and Hawaii at currently $625,500. If you’ve ever checked out homes in those markets then you know that severely limits your choices unless you have significant assets to invest in the down payment. [rant] A reduction in those loan limits would be high on the the list of moronic housing decisions that FHFA have laid out in the past couple years.[/rant]

In order to protect ourselves and customers against the foolishness of policy makers in Washington, we decided that a new loan product was in order and the JUMBO RENOVATION MORTGAGE was born. Less than a month old demand is high as buyers earnest seek the home of their dreams in housing market that is utterly devoid of inventory. It’s tough on buyer and tough on agents who are seemingly a day late on the most desirable homes.

With renovation financing you don’t need the perfect home, just a good home in a good location. You do the rest with your own personal touch and you end up with the perfect home, your dream home.

Jumbo Renovation Guidelines

Since this is a one of kind proprietary product we decided that we’d roll the product out conservatively. As we start to see more statistics on default rates and customer trends I expect guidelines to expand. As it stands, here are the current underwriting parameters (some exceptions may apply).

Credit Score – 700+ Mid Score

Maximum Loan Size – $1,500,000

Max Renovation Amount – $150,000

Occupancy – Primary Residence ONLY

Max LTV (Loan to Value) – 80% Purchase, 75% Refinance

Reserves – 6 Month PITI (PITI = 1 Mortgage Payment + Escrows)

Major Derogatory Credit (Foreclosure, Bankruptcy, Deed in Lieu) = 7 Year Waiting Period

Clearly we are looking for a well qualified buyer. If you are buying a million dollar house and hoping to use a mortgage then that is probably not a surprise.

If you’ve had some major derogatory credit or just don’t have the assets then we can always explore other renovation options that will get you into the home (like the 203k or HomeStyle) then use the power of time to build equity and assets to pursue a jumbo renovation refinance. We know the renovation market backwards and forwards, creativity is one of our strong points.

The $150,000 max renovation escrow will be limiting to some customers too, but once again creativity financing is possible. Say you plan to add a 2nd story, fully renovate the main floor and build a pool. The contractor bids you are getting average $300,000 for the full project – $150,000 for the addition, $100,000 to renovate the main floor and $50,000 for the pool.

We could help with either the main floor + pool or the addition. Both would add tons of value which would allow you to come back 12 months down the road and do a renovation refinance (using after repair value) to do phase two OR, in some cases, you just added enough value to get a home equity line (based on current value) to finish out the remainder of the renovation.

Guidelines are guidelines and borrowers fit into them and not vice versa. Square pegs don’t fit in round holes unless you take a buzz saw and some sandpaper to them. That’s actually the fun part for us, making things work through experience an creative knowledge.

Have questions? Ready to move to application? No problem, we are here to help. Simply click on the link below and fill out the contact form OR give us a call and we’ll guide you, answer questions and get the ball rolling.

When you plan on selling a property, it’s important to remember that most buyers will have to take out a mortgage to buy your property. When a mortgage company or bank looks to help finance a property for a buyer, an appraisal will be necessary to show condition of the property. If there are any condition problems that the lender doesn’t allow, this can delay the closing of your property or kill the deal.

Make sure you understand what major items a lender will look for in the condition of a property, when a buyer is taking out a mortgage. Here is a good list of items that you should review, if you plan on selling your property anytime soon.

Major Items to Check on Your Property

Roof – Lenders are looking for leaks and major damage or major deterioration.

Windows/Doors – Make sure they are not broken and are working properly.

Basement – Make sure there are no signs of major cracks or movement in the walls. Foundation issues can really cause problems when it comes time to sell your property.

Walls – Make sure the walls don’t have large holes, signs of water damage or unfinished.

Repairs – Any repairs or improvement projects must be complete. You don’t necessarily have to have the trim installed, but all fixtures need to be installed.

Heating – This must be in working condition. It doesn’t have to be new, but it must work.

Water – This must be working and flow through the house, without any leaks.

Hazardous Conditions – Make sure some items like, methane gas, lead paint, radon gas, radioactive material, landfill, toxic materials, etc. are not in or on the property. This can cause big concerns with the lender.

It’s always recommended that you have your home inspected by a licensed home inspector. This way, you will have peace of mind that there will be little to no problems with the condition of your property when the buyer uses a lender to buy it.

The FHA mortgage program has become a very popular mortgage program with first time home buyers. Home buyers do have many options with mortgage programs when looking to get pre-approved, but the FHA program has become the most popular.

There are many reasons why the FHA program has become very popular among first time home buyers. Here are some of the great benefits why the FHA mortgage program is great for home buyers.

Credit Score

The minimum credit score allowed with most lenders is a middle score of 640. It’s very common that home buyers don’t realize they have a good enough credit score to qualify for the FHA mortgage program. The lower credit score that is allowed opens up the opportunity for many first time home buyers to qualify for a mortgage.

Down Payment

The minimum down payment is only 3.5% of the purchase price. The down payment can even be gifted funds from a family member. Many home buyers didn’t know the down payment can be gifted. Home buyers can even use the funds from a 401k retirement account.

Interest Rates

The interest rates for the FHA mortgage program are very low. We have been seeing the FHA interest rates lower than most conventional mortgage rates, when comparing 30 year fixed rates. These lower interest rates keeps the total payment lower for home buyers, which allows them to afford more of a home.

Debt to Income Ratio

The debt to income ratio allowed is higher with the FHA program versus a conventional program. The debt to income ratio is the total monthly payments, including the new mortgage payment, divided over the total gross monthly income.

Example: The new mortgage payment total is $1500, plus an auto loan payment of $300, plus a credit card payment of $50, gives you a total monthly debt of $1850. The total monthly income, before taxes, is $5000. 1850/500 (total debt/total income) = 37%.

The FHA program lenders allow up to 55% debt to income ratio percentage, where a conventional mortgage only allows up to 45%.

These benefits have made the FHA mortgage program the most popular program among first time home buyers.

VA loan volume hit an 18-year high in the fiscal year that ended in September, according to data recently released by the Department of Veterans Affairs.

The significant increase — both historical and year-over-year — is another sign that military borrowers are moving away from the tighter conventional lending space and toward the VA loan program’s more flexible credit and income requirements. Loan volume jumped 51 percent from FY11 to FY12, spurred in large part by a boom in refinance loans.

VA loan growth

Record-low interest rates have made the VA’s Streamline and Cash-Out refinance programs increasingly attractive. In some cases VA-approved lenders are able to process Streamlines without an appraisal, which continues to help qualified underwater homeowners take advantage of low rates.

Here’s a look at how VA loan volume has changed in the last five years alone:

The continued growth of the VA loan program comes as consumers continue to face tighter lending requirements in the wake of the subprime mortgage meltdown. Generally, VA lenders are looking for a credit score of at least 620, and the program offers financial benefits such as $0 down, no private mortgage insurance and higher allowable debt-to-income ratios.

Flexible requirements

Many military borrowers can struggle to hit the credit and/or down payment requirements necessary to secure conventional or even FHA financing. The average credit score on an FHA denial in May was 669, according to the National Association of Realtors. More than half the conventional loans issued in August went to borrowers with at least a 740 score.

Every state experienced at least a 25 percent increase in loan volume. Some military-dense states posted big gains in particular, including Hawaii (89 percent), Virginia (69 percent) and California (65 percent).

This updated refinance program, HARP 2.0, has been helping many underwater homeowners in Wisconsin. Many homeowners are reading different guidelines from different lenders with this program. This will happen, because each lender may create their own guidelines for HARP 2.0.

Here are some basic guidelines to help you understand what is allowed with HARP 2.0. You always want to check with the lender you plan on working with first, in order to make sure your situation will qualify.

Guidelines To Follow

Fannie or Freddie Backed - Your mortgage needs to be backed by Fannie Mae or Freddie Mac in order to qualify. Also, your mortgage had to be received by Fannie Mae or Freddie Mac before June 1, 2009. Here are the website’s to look up your mortgage with Fannie and Freddie:

No LTV Limit - You can have little to no equity or be completely underwater on your mortgage. There is no cap to how far underwater you are. Some big banks have a cap to their LTV (loan to value), so you should check with a local mortgage company to find those that do not have a cap. A Wisconsin lender that has no cap to the LTV for HARP 2.0 is Joshua Bucio. Read more at http://www.milwaukeeharprefinance.com

No Appraisal - Just about all of the HARP approvals are receiving a waiver on the appraisal report. This means you will not be required to appraise the home. This will help reduce your costs and streamline the process of your refinance.

Eligible Properties - Your primary residence, second homes and investment properties all qualify for the HARP 2.0 program. Your property can even be a multi-unit, up to 4 units total.

Second Mortgage - If you have a second mortgage or home equity line of credit, you can still refinance with the HARP program. You cannot payoff the second mortgage with the refinance, so you have to keep it open. This program is only for first mortgages.

Mortgage Insurance - If you currently have a mortgage insurance (aka PMI) payment, as part of your total payment, that’s ok. The mortgage insurance on your current mortgage will be transferred to your new mortgage loan. This will not hold you back from qualifying for HARP 2.0.

Please keep in mind many of the big banks have many more strict guidelines than most local mortgage companies. It may not be your best choice to use a big bank. Take the time to contact a local mortgage company that helps with the HARP refinance program.

Housing and finance experts are predicting the dog days of summer are likely to produce a deluge of short sales.

“We’re seeing a rush already,” Daren Blomquist of RealtyTrac told Reuters. “There was a big increase in the first quarter and we’re expecting that to continue.”

The crush of short sales comes as more and more banks opt for a portion of what they’re owed rather than have a property go into foreclosure. The Obama administration has advocated short sales as a solution for both financial institutions and sellers.

RealtyTrac data shows short sales in the first quarter of 2012 were up 25 percent compared to the year prior. The total — 109,521 — represented a three-year high. In fact, 2012 may serve as the high-water mark for short sales.

Tax Break Ending

Homeowners considering whether to pursue a short sale are also staring down the calendar. Normally sellers in a short sale see their forgiven loan amount counted as taxable income. A temporary governmental provision suspended that to help unclog the foreclosure pipeline, but the tax break comes to an end this year. Short sales can often take months, which means prospective sellers need to move soon in order to retain the tax break.

They also need to begin the process with their bank. Most sellers will take a credit hit of anywhere from 85 to 160 points and be precluded from obtaining home financing for several years. Veterans and other VA-eligible borrowers will have to wait two years before being eligible for a VA-backed mortgage.

Short Sale Market

Short sales continue to be a great deal for buyers with the credit and income to secure home financing. Prices on distressed properties are often 2o to 25 percent less than non-distressed properties, but there’s increased competition on short sales, which tend to be in better shape than foreclosures.

Buyers expecting to land a deal may need to rein in their optimism and come prepared with a serious offer.

Regardless of what type of loan you are interested in getting, the paperwork and process of getting a loan can be confusing. Sure, there are different types of loans (popular ones include VA loans, FHA loans, Conventional loans and jumbo loans) and the paperwork will be different for each type of loan – but that is not the only confusing part of the process. Each lender has different “overlays” which means getting an FHA loan from one lender may follow a slightly different process than getting a loan from a different lender.

To further complicate things, there are mortgage brokers, bankers and large banks — and each one has their own process to follow that can be confusing.

Lucky for consumers, the CFPB has been established to hopefully make the entire process simpler regardless of what type of loan you apply for.

The Consumer Financial Protection Bureau (CFPB), established following the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was implemented specifically to create, implement and enforce laws that protect consumer interests as they pertain to financial dealings, including mortgage applications.

As a direct response to complaints from consumers that they did not receive ample information or assistance from their lenders, the Bureau recently unveiled plans to simplify the mortgage application process and to provide increased protection for consumers who are taking out high-cost mortgages. If implemented, these regulations will provide the transparency needed for consumers to avoid costly hidden fees and uncertainties during the home-buying process. The proposed regulations currently open for public comments, and the final version of the regulations should be finalized by early 2013.

What the New Regulations Entail

Until now, federal law has demanded that loan applicants receive two sets of similar forms, one required by the Real Estate Settlement Procedures Act (RESPA) and the second required by the Truth in Lending Act (TILA). Aptly dubbed “Know Before You Owe” mortgage forms, the CFPB’s proposal would continue to require two sets of forms, but the information contained within would be less repetitive, such that one form would focus entirely on stipulating the closing costs, while the other would describe the mortgage process as a whole, including the costs and risks, information which would hopefully reduce the risk of foreclosure or defaulting on the loan.

The new forms proposed by the CFPB have been reviewed by both consumers and mortgage professionals, and have received thousands of comments from the public. Ten rounds of testing have been done in order to fine-tune the documents to ensure that they address the issues as clearly and concisely as possible. The CFPB website current presents the proposed forms for public feedback which can be submitted until November 6, 2012.

In addition to changes in the paperwork required when applying for a mortgage, the CFPB has proposed that mortgage lenders adjust the paperwork presented to borrowers in the form of monthly statements, so that moving forward, each monthly mortgage statement would include a breakdown of the different aspects of the mortgage payment such as interest and principal, as well as information listing where borrowers can seek help if they are concerned about their ability to pay their mortgage.

In the same vein, the new regulations would also require lenders would to inform borrowers in advance of any upcoming interest rate hikes, and to provide suggestions as to where the borrower can receive assistance if he or she expects that the rate hike will make the monthly payments unaffordable.

If implemented, the CFPB will monitor lenders to ensure that they respond to all borrower inquiries within a defined time period, a measure aimed at preventing borrowers from entering foreclosure simply because they could not connect with their lender to find an alternate solution which may include refinancing, speaking with a HUD (US Department of Housing and Urban Development) counselor or filing for government assistance.

Finally, the CFPB is working to protect borrowers taking out high-cost mortgages by restricting fees for late payments or modifying the terms of the loan, and requiring loan counseling for all recipients of high-cost mortgages. Public comments about the new stipulations for high-cost borrowers can be submitted to the CFPB until September 7, 2012.

Whether or not the proposed CFPB regulations are actualized, it is critical for mortgage borrowers to understand their options as they pertain both to borrowing conditions and repayment options during an unexpected financial crisis. Those who are unsure about their options or who don’t feel comfortable making a final decision should be encouraged to seek additional advice or to review the material presented so that they can make a comfortable, informed decision before committing to a long term loan.

It seems like mortgage interest rates keep falling to new lows, largely thanks to a struggling economy.

The 30-year fixed-rate mortgage fell to 3.56 percent with an average point of 0.7 for the week ending July 12, down from 3.62 percent the previous week, according to Freddie Mac. At the same time, the 15-year fixed-rate mortgage dropped to 2.86 percent with an average 0.7 point, down from 2.89 percent from the previous week. This time last year, the 30-year fixed-rate mortgage averaged 4.51 percent, and the 15-year was at 3.65 percent.

A poor jobs report for June helped decrease long-term Treasury bond yields and mortgage rates. Only 80,000 jobs were created, not enough to make a dent in the 8.2 percent unemployment rate.

Homebuyers and current homeowners, as well as mortgage professionals, are probably wondering if rates can drop even more. Homeowners may be wondering if they should put off their mortgage refinance in a bid to lock into an even lower interest rate.

Wait for Lower Rates?

Home buyers might be thinking about delaying a home purchase for another year a few more months to wait for a better rate. Perhaps they think home prices will go down even more, and they figure they’ll be able to buy a larger, better house if interest rates decline a bit more.

Here are some reasons why mortgage rates could drop even more.

Bond spreads. Mortgage rates are higher than usual when compared to Treasury bonds.

Mortgage rates, typically based on Treasury bond yields, are usually about a 1.7 percentage point higher than the 10-yield Treasury bond yield. But recently the difference between mortgage rates and those bond yields, or the spread, been has more than 2 percentage points higher.

The euro zone. The ongoing euro zone debacle, which shows no signs of ending, could prompt investors to put even more of their money into Treasuries. That would drive both Treasury yields and mortgage rates even lower. European leaders appear to be dedicated to austerity measures that have proven to be a failure.

Drastically slashing public spending and raising taxes in an effort to decrease countries’ debt have decreased government revenues and worsened recessions. Recession in Europe will probably be a drag on the U.S. economy, as Europeans will have less money to buy American goods.

Plus, financial markets will probably continue to fear that break up of the euro zone will create a financial crisis that spreads to this country. Many European banks are highly interconnected with the U.S. financial system, and our fragile economy remains vulnerable in this integrated financial landscape.

Quantitative easing. The Federal Reserve might pursue another round of quantitative easing, a so-called QE 3, in which it purchases large amounts of bonds in an effort to drive down interest rates. Although only a few Fed board members now advocate more easing, other members say they will support it if economic conditions worsen.

The Fed has already extended its Operation Twist – selling short-term bonds and buying long-term bonds in an effort to drive down long-term interest rates – through the end of the year.

China. A slowing Chinese economy could export more economic troubles. The signs of an approaching economic meltdown are clear, notes an article in the journal, Foreign Policy. Chinese businesses are obtaining fewer loans. Interest rates have been cut. Manufacturing output has tanked. Imports are flat, and GDP growth projections are down. Real-world signs, like fire sales of government property, falling pork prices, and wealthy Chinese moving their money overseas, and incidents of social unrest, are evidence of a faltering economy.

Consumers Benefiting from Low Interest Rates

While low home loan rates show the feebleness of the global economic recovery, homeowners benefit by being able to refinance at much lower rates. If home loan rates are not at record lows, they’ll probably stay pretty close. The average 30-year fixed has stayed below 4 percent for 16 weeks, while the average 15-year fixed has remained under 3 percent for seven weeks, according to Freddie Mac.

But then again, anything is possible. It’s possible that the world economy will unexpectedly rebound and euro zone leaders will suddenly agree on a comprehensive solution to their fiscal crisis. Instead of waiting for mortgage rates to drop even more, home buyers and homeowners should lock into a low mortgage rate when it’s in their best financial interest.